The daily deal: Theatre owners spill the popcorn on using Groupon and Living Social

When an offer of a discounted pair of movie tickets along with popcorn and drinks pops up in the inboxes of e-mail subscribers to daily-deal sites like Groupon and Living Social, thousands respond. It’s a ready-made outing, and for 50% off, even the most recession-minded consumers can find it difficult to resist. While such low prices are a great deal for customers, can small independent theatres afford to run these deals without hurting their bottom line?

Theatres like the Brew & View at the Vic Theatre in Chicago, Illinois; The Lyric Cinema Café in Fort Collins, Colorado; and the Pickwick Theatre in Park Ridge, Illinois, have used Living Social and Groupon, often multiple times. For them, the answer is a resounding “yes.” If you run these deals right, they say, you can market to difficult areas, bring in new customers—many of whom spend more than just their deal—and boost your bottom line.

Daily-deal sites thrive by offering deep discounts that usually slash prices by 50% or more. Groupon and Living Social also take a share of the proceeds, so if you offer $8 for two movie tickets and two drinks, a portion of that goes to the deal site. Living Social doesn’t discuss the terms of their deals, but Groupon’s manager of merchant public relations, Nicholas Halliwell, notes that “typically the revenue split is 50-50, [though] it can vary on a case-by-case basis. They’ll look at volume and things of that nature.”

Dino Vlahakis, owner of the Pickwick Theatre, successfully negotiated his percentage with Groupon so he could cover his payouts to the distributor or booker. “The item I give is two admission tickets, two small popcorns and two small drinks. So I get my admission prices out of it and that’s key, because the film companies are happy that they’re getting their money too. I would never do anything to jeopardize that. If you lose your film companies, you’re not going to be in business very long,” Vlahakis warns.

The Lyric Cinema Café, which has just two theatres seating 80 and 50 people, has looser contracts with indie distributors, which means owner Ben Mozer can simply pass on the lower price to the distributor, since most go by straight percentages. “Our films are just significantly cheaper than a big theatre’s, and they come with less strings,” explains Mozer. The same holds for Chris Leggett of Brew & View, which shows double and triple features, usually second-run wide releases or smaller indies, in a tables-and-chairs, café-like setting. People who come in with Groupon offers receive a different “discount” ticket that is recorded as such in their daily receipts.

Movie theatre concessions like popcorn and sodas are cheap, making them good for inclusion in deals. Mozer and Leggett both note that their peers in the restaurant world haven’t had nearly as much luck doing such deals because of high food costs. Vlahakis, who also owns a pizza parlor, only does the deal for the theatre because food costs are too high for his other business. “Friends of mine that manage bars and bistro-type places, the food costs spiked and it didn’t do well for them, but it’s been fantastic for us,” Leggett notes. Mozer concurs. “A restaurant will be making 30% on one of their plates, and if they mark it down 50% they just lost 20% of their money. It doesn’t work like that for us. Our popped popcorn is really, really cheap.” While putting together a deal with a ticket, popcorn and soda may be the cheapest way to go, it also may not encourage the most upsells.

After doing his first two deals, one with Groupon and one with Living Social, using soda, Mozer decided to switch out the drink for a beer for his next Living Social deal. He sold 2,278 deals for two movie tickets and two beers for $12. “When someone has one beer, they have to have another beer, and when they have two beers they have to have something to eat, and then they might as well get some dessert...” he elaborates. “It was a good decision to include alcohol in the deal. It kind of lubricates the whole mechanism.” Any higher costs associated with offering beer were cancelled out because “it encourages so many other sales. It ended up being a net gain for us. We ended up doing really well financially because of it.” Mozer encourages anyone serving alcohol in their theatre to include beer in the deal.

Vlahakis’ theatre doesn’t serve alcohol, but he trained his staff to offer upsells from small drinks and popcorns. “Because the customer has actually bought the Groupon already, they haven’t spent any money that day. A customer comes and they’ve forgotten that they’ve already paid for this and, believe it or not, 50% of the people upgrade.” His average per-capita is $2.50 per person, but upgrading can bring those numbers to $5 per-capita.

Groupon and Living Social deals can last for anywhere from a year to just a few months before they expire. For theatre owners with seasonal peaks and troughs in their business, timing their deal right can make a huge difference. Vlahakis takes a precise approach to his Groupons. “I don’t do Groupon year-round, it doesn’t pay. In the summer months, we’ve got Spider-Man coming, we’ve got Batman, and you don’t want to give away the popcorn. I usually do this during down time, like fall or spring. April is a slow month, September and October is a slower time, and also right before Christmas is a slow period. I target my Groupon during those periods.” Towards the end of last year, Vlahakis ran a deal on October 21 that expired just two months later, on December 15. Getting boosts during slower times is also what initially drew Mozer and Leggett to Living Social and Groupon.

Leggett now runs his deals pretty much year-round, but he initially wanted the deal to help during his slower period, the summer. His 1,000-seat theatre rarely approaches a sellout, and he prefers having plenty of people to serve. “Everyone is a lot happier when we’re busy, and the night goes by quicker,” he says of the effect the deals have on the staff. “Before I did this, I did concerts for 13 years, so I’m used to volume.”

Deals themselves are not redeemed evenly. Most people come either at the very beginning or the end of the deal, before the promotional value expires. “The way we’ve done it is right as the deal is finishing, we do a new one, so we get double the rush at the beginning and the end.” Leggett reports that his first deal sold 6,000, the second 8,000 and the third in the 7,000 to 8,000 range. With each deal good for two tickets, that’s over 40,000 admissions—enough to sell out his theatre for 40 nights straight.

Mozer’s busy period is during the fall and winter, while spring is his most sluggish season. “I’ll only do Living Social during the spring, to get money in spring when it’s slow, and then we can ride Living Social through the summer, when it’s not crazy busy, but kind of busy.” His strategy was hard-won through experience. His first deal lasted a year, with many people redeeming the offers during his busy seasons, fall and winter. “We ended up having sold-out shows. People can’t make it into a show and they have the coupon. It’s better as infill for the slower parts of the year.”

Having a shorter time period also makes the deal easier to track. With owners citing anywhere from 30% to two-thirds of people not redeeming the deal, that also means it’s easier to know when the coupons turn into profit. However, theatre owners still must honor the amount the person paid for the deal (say $6), but not the promotional value (double that). That means customers will claim funds the owners have long since assumed were profit. “We’re still seeing people come out with the first one,” Leggett says of a deal that’s been expired for over a year.

Three weeks after running a deal, Living Social gives Mozer a lump sum covering all the sales. “It’s really, really nice for us in the slow season,” he says of the revenue from the deal, especially because “most of it is never redeemed. Anything you have to pay out on, you don’t have to pay that much, and the rest trickles in.” Groupon and Living Social essentially provide a small loan against future sales, creating the kind of cash flow that can really help a small business.

Groupon may be the biggest daily-deal company, with Living Social close on its heels, but choosing a company may have to do more with the specifics of a particular area, as well as the company’s placement of the ad. Mozer’s first deal with Groupon only sold around 600 units. His switched to Living Social, landing 900 buyers the first time, and 2,500 the second time. In order to sell the most deals, it’s important to have good placement within the e-mail body. Some deals only appear once viewers click through to the site itself, and those often have lower response rates. As more companies crowd into the daily e-mails, responses can weaken.

“The initial one was the most successful,” Vlahakis sums up. “When we first went on there, we were the only featured item for the day. But now when you go on it, you might have as many as 30 items.” His first deal attracted 2,400 buyers, but his most recent, his fourth, captured just over 1,000. He’s still sticking with Groupon, however. “Three or four new ones have come in, and they’ve all approached me, but I’m a loyal guy. They came up with the idea first and they’re the biggest.”

Theatre owners praise the deals not only for bringing more eyes to their cinemas, but also attracting audiences from different demographics and geographic areas. “Fort Collins is split into two segments, the south-of-town suburban area and the north old-town area,” Mozer explains. “Trying to market to the more suburban area is really difficult. They don’t have a community center, but everyone gets Living Social in the south of town. It’s a great way of marketing to them and getting our name out in a notoriously difficult market.”

Leggett, whose theatre is on the north side of Chicago, finds that Groupons draw people from Evanston and Oak Park, a wider geographical net. They also bring in the “daily-deal” customer, usually in the thirty- to forty-something age range. That can be younger or older than a theatre’s typical demographic. For Leggett’s Brew & View, he notices an older audience than the norm that uses the Groupon for a date-night experience. While his college crowd usually comes to the 8:30 p.m. and 10:30 p.m. shows, the Groupon customers come in at 6:30 and 8:30 p.m. In contrast, Mozer’s theatre draws a reliable 50+ crowd, but the Living Social deal brings in viewers a decade or two younger.

Living Social and Groupon can entice throngs of customers wielding printouts and mobile phones to redeem their offers, so having an extra staff member on hand at the beginning and end can help stave off lines at the ticket booth and concession stand. Brew & View at the Vic Theatre and Lyric Cinema Café have also had difficulties keeping up with popcorn demand. Lyric kept running out of popcorn kernels during its first deals, while Brew & View had to bring in someone early in order to give their older popcorn machine a head start to keep ahead of the orders.

Then there are the customers themselves. “There’s a certain amount of entitlement associated with coupons,” Mozer points out. “The ‘I purchased this, I should be able to exchange whatever I want because it’s my money,’ or ‘I should be able to get into the movie because I pre-bought the ticket.’ It’s various mindsets like that,” Mozer notes. “You try to mitigate as much as possible by saying no substitutions, subject to availability, and all that crap, but it only works so much.”

Many customers also don’t research the deal before buying it, and end up disappointed or complaining because the theatre is different than they expected. “We have a really funky place,” Mozer says of his theatre. “There are people who really, really like it, and there are people who are not as impressed with the whole experience, because it’s not a multiplex, and there’s no cupholders.”

Leggett has had a similar response from people who don’t notice the historic Vic Theatre is an older venue until they show up. “They don’t realize we’re not a new theatre, we don’t have surround sound, we don’t have posh seats, and the equipment is a little bit older.” Because the venue hosts other events besides movies, keeping a liquor license is paramount, creating restrictions customers may not know about. Ticketing takes longer since people must have a valid ID and bags must be searched for contraband alcohol. After running the initial deal with Brew & View, Groupon sent out a photographer to take pictures of his theatre, which Leggett thinks gives “people a better idea of the physical aspects of the theatre, and the fact that we’re an older theatre. That’s helped out a lot. People know exactly what they’re getting. He advises other theatre owners doing deals to pay attention to “how you’re described as a theatre and business when they run the deal, just so there’s no confusion, let alone mass confusion once you sell a mass amount of Groupons.”

For the right kind of theatre and with thoughtful oversight, daily deals make good on their promise to attract new customers and encourage those who buy them to open their wallets a little more. Because Groupon and Living Social emphasize that thousands of people are buying the deal together, they smooth over some of the embarrassment people may feel when redeeming a coupon. Theatres that use Groupon and Living Social show customers that they are tech-savvy and on top of the latest trends. For Vlahakis, who has owned his theatre for 31 years and describes himself as an “older person,” embracing new technology and advertising ideas is key to thriving in “the best business in the world.” The industry, “especially the last eight years, has changed dramatically and you just have to be a leader and go with the changes.” That means trying out new strategies to gain customers, including the deep discounts on popcorn and movies that make customers take notice and click “buy.”